ALBANY, NY (10/31/2012)(readMedia)-- The Teachers Retirement System (TRS) recently announced that school district's contribution (the ECR or employer contribution rate) will increase from the current 11.84% of salary to a range of 15.5% to 16.5% next year.
While this jump reflects an increase in school pension costs of over 30%, only a small portion (1.66 to 2.66%), is permitted to be excluded from the state imposed tax cap.
The percentage differential results from a flaw in the tax cap law that limits school districts to exempt only an increase above 2 percentage points in the ECR rate, not a 2 percent increase or impact on the school district's budget.
For example, a school district with a $25 million budget and a salary base of $17.5 million in 2012-2013 (estimated at 70% of budget), will experience an increase in pension costs of between $694,000 and $873,250 due to the new employer contribution rates. Unfortunately, the tax cap law will only allow the school district to exempt from the cap between $296,000 and $475,810 of these extra pension payments.
What does this mean for this district? Even under circumstances where the school district experiences a small 2% increase in its salary base (due to labor contracts), the school district will have figure out a way to fund the approximately $400,000 in extra pension costs not excluded from tax cap calculations.
Districts should not be forced to make further program cuts or ask their tax payers to exceed the tax levy cap because of State imposed retirement contribution costs. The State should modify the tax levy cap formula to exempt, at a minimum, actual pension costs that increase more that 2% from the prior year.
In addition, state policymakers should allow school districts to establish TRS Pension Reserve Funds (similar to those already allowed for ERS Pensions) that would allow school districts to put aside money to pay for these unexpected increases in the future without jeopardizing their ability to deliver a sound basic education to their students.
"State policymakers need to act quickly to address these skyrocketing pension costs. We are mortgaging our future (children's education) to pay for our past mistakes (pension sweeteners). Tier VI pension reforms will not have a beneficial impact on school districts bottom line for six to seven years, and we cannot wait that long for fiscal relief", stated Michael J. Borges, NYSASBO Executive Director.